12/15/2010

Healthcare Cost Containment Part III: How to Bend the Curve

By David A. Kindig, MD, PhD

I’ve been blogging for a couple of weeks now about healthcare cost containment. I’ve described the Affordable Care Act’s provisions for realigning Medicare expenditures with GDP increases and addressed the “R” word. The lead editorial in last Sunday’s New York Times notes that the Bowles-Simpson deficit reduction commission sets similar targets, but says “the commission punts on what do to should the growth cap be exceeded, as many experts deem likely.”

At the start of this series, my friend and colleague David Riemer, who directs Milwaukee’s Community advocates Public Policy Institute, issued this challenge to me: “I hope (you) explicitly address the multiple perverse incentives in today's health care system that drive its hyper-inflation, and how those incentives require a fundamental realignment if costs are ever to be controlled. Setting goals without realigning incentives will just be happy talk--it will get us nowhere. Sorry to be so brutal about this, but it's the brutal truth.”

We know that healthcare cost does not predict healthcare quality. Drs. Jack Wennberg, Elliott Fisher and colleagues at Dartmouth have for years been calling attention to the dramatic regional variation in per capita Medicare expenditures that bear no correlation to health outcomes. They observed Medicare growth rates varying from 2.3% in Atlanta and Pittsburg to 5.3% in Dallas over the period 1992-2006. Reducing the spending rate from the national average of 3.5% to the 2.3% experienced by Atlanta would save Medicare $1.3 trillion by 2023.

So what change in incentives would begin to “bend the curve” towards the Affordable Care Act’s 2018 goals? The concept of value-based payment systems is one approach that has been gaining traction in recent years. In fact, the Affordable Care Act establishes one such approach as a new Medicare payment model: the Accountable Care Organization (ACO). ACOs are designed to improve quality and reduce costs by incentivizing (via shared savings) collaboration among health care organizations and providers. While the ACO model is certainly no silver bullet (Fisher and Shortell underscore in their recent JAMA commentary that effective tools for performance measurement and evaluation are lacking), it provides a promising place to start thinking about realigning incentives.

Using the Dartmouth observations, policymakers should be required to identify specific targets in regional per capita total health expenditures and their growth rates (such as the Affordable Care Act’s goals for Medicare increases). As in the Clinton plan, geographic areas in which incentives for ACOs and other market forces are strong enough to meet these goals would avoid regulation. But in those that fail to meet targets, federal regulation should be invoked, limiting the annual increases in Medicare and private premiums that could be charged until target growth rates are achieved.

Why does a population health advocate spend so much blog space on health care expenditures? The answer is a central theme on this blog. In our resource-limited world, we urgently need to rebalance our health investments to expand resources for prevention and the social determinants of health. While we can’t presume that savings from ineffective health care could or would be redirected to these ends, we should all agree that this is a worthy goal.

David A. Kindig, MD, PhD, is Emeritus Professor of Population Health Sciences and Emeritus Vice-Chancellor for Health Sciences at the University of Wisconsin School of Medicine and Public Health.